Traditional monthly financial statements – assuming your company even prepares them – are the business equivalent of using just the rear-view mirror to drive. Accurate monthly profit-and-loss, balance sheet and cash flow statements are important, but other internal reports may be more useful in making daily business decisions.
The content of standard financial statements is limited by rules concocted by accounts. In addition, standard financial reports measure the results of decisions made months ago, so their value in helping you make decisions is somewhat limited.
Consider supplementing financial statements with internal reports that combine financial and nonfinancial data. These “key performance indicators,” or KPIs, can and do vary among industries and companies.
KPIs tracked on a monthly, weekly or even daily basis can help you make quick decisions and take actions that lead to profits or head off losses. A typical business owner or manager can’t use a P&L to determine the actions needed to show a profit.
Suppose, however, that you focus on specific productivity, revenue and efficiency goals. You might, for example, decide that in a given week each truck should run at least 2,250 miles at a revenue per loaded mile of $1.25 and no more than 20 percent deadhead miles. You might even break this down into daily goals.
Even if you only look at this targeted data monthly, it’s better than just relying on broad financial statements. And by reviewing performance weekly or daily, you can make adjustments that will allow you to change the current month’s result. KPIs naturally become benchmarks; managers try to beat the old mark with the next day’s or week’s results.
It’s easier to track a few KPIs, of course, than many. But the more KPIs you follow, the greater the chance that you will spot a weakness. One carrier I work with has separate KPIs for its company-owned trucks and its owner-operators. For each, it tracks weekly total revenue, revenue per mile, revenue per loaded mile, deadhead percentage, number of loads, average load revenue, truck count, drivers lost, drivers added, cargo claims and safety incident status.
But this carrier doesn’t stop at drivers. It measures customers through accounts receivable statistics, both in dollars and percentage of total accounts receivable that are 30, 60 or 90 days old. If you wanted to get really sophisticated, you might add KPIs that measure employee morale, employee complaints, customers visited or new shippers solicited.
Sure, these KPIs represent lots of work. But the payoff can be huge. In one report, you can know whether your company or fleet is headed for black ink or red. And if things aren’t going well, you have some strong clues as to why.
Setting KPIs is an ongoing process. You might find that you meet all of your weekly and daily goals and still miss your monthly profit goal. If so, it’s clearly time to revisit your goals.
You probably have never seen a P&L that provides so much detail. But if you want to make a profit, you need to measure the things that lead to profits. Once you do that, it’s likely that the profits will take care of themselves.
Kenneth dewitt is a CPA and Certified Financial Planner who serves as a part-time chief financial officer for a variety of businesses, including trucking companies.